SFC steps up information dissemination and investor education on VATPs
In light of recent public concerns about unregulated virtual asset trading platforms (VATPs), the Securities and Futures Commission (SFC) is putting in place a series of measures to reinforce information dissemination and investor education.
The SFC has long seen the potential benefits that the underlying technology adopted in digital finance and virtual asset (VA) activities can bring to the financial markets. It has also identified the risks associated with these activities, including decentralisation, money-laundering and investor protection issues. The SFC recognises VA trading as integral to the Web3 ecosystem, and is one of the first major financial regulators to introduce a comprehensive framework to regulate a wide range of VA-related activities since 2017. The risks identified above are consistent with the latest international consensus among financial regulators, and many are reviewing their local regimes focusing on these risks.
Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO) which came into full effect on 1 June 2023, the new licensing regime for centralised VATPs has closed the gap in the SFC’s licensing and supervision powers over VATPs. SFC-licensed VATPs are subject to robust governance measures covering safe custody of assets, prevention of market manipulative and abusive activities, and avoidance of conflicts of interest, among others, to safeguard investors’ interests.
As a condition to allow SFC-licensed VATPs to serve retail investors under the new regime, the SFC has further imposed a number of stringent requirements including ensuring suitability in the onboarding process, enhanced token due diligence, admission criteria and disclosures.
The SFC has been closely monitoring VA activities in Hong Kong to detect possible breaches of law under its regulatory remit. It gathers information from different sources including market news, media reports, frequent dialogues with the industry, complaints and social media. The SFC also actively assesses the need to put entities on the Alert List and refer cases to the Police as appropriate.
The SFC and its subsidiary the Investor and Financial Education Council (IFEC) have been working closely together to educate and warn investors about the risks of trading on unregulated platforms.
The JPEX incident highlights the risks of dealing with unregulated VATPs and the need for proper regulation to maintain market confidence. It also shows that dissemination of information to the investing public through the Alert List, warnings and investor education can be further enhanced to help members of the investing public better understand the potential risks entailed by suspicious websites or VATPs. Against this backdrop, the SFC is putting in place the following measures:
- The publication of VATP lists to ensure that information is disseminated in a clear, transparent and timely manner. These include:
- a “List of licensed VATPs”;
- a “List of closing-down VATPs” setting out the names of VATPs required by law to close down within a specified period;
- a “List of deemed licensed VATPs” consisting of the names of VATPs which are deemed to be licensed as of 1 June 2024 (Note 1);
- in light of public demand, a list of VATP applicants.
- To help the public more easily identify suspicious VATPs doing business in Hong Kong and enhance awareness, the SFC will enhance and issue a dedicated list of suspicious VATPs which is easily accessible and with prominence on the SFC’s website. The SFC will also consider providing more information about these VATPs to alert investors at an earlier stage. Again, this is to ensure that information will be disseminated in a clear, transparent and timely manner.
- The SFC and the IFEC will soon launch a public campaign to raise awareness in guarding against fraud, and will further enhance investor education by various means such as mass media, social media and education talks, facilitating the public’s understanding of the risks associated with VAs and potential fraud.
- The SFC will, within its statutory powers, continue to strengthen its intelligence gathering process towards different businesses related to VAs. It will continue to take follow-up and enforcement actions against suspicious VATPs that may have violated the law, and refer cases to the Police when necessary. The SFC encourages members of the public to come forward and file complaints via its Online Complaint Form regarding any suspicious activities they may encounter. Public complaint is a valuable source of intelligence for the SFC.
The SFC will explore with the Police to set up a dedicated channel to share information on suspicious activities of and breaches by VATPs and to investigate the JPEX incident to bring the wrong-doers to justice.
Adhering to the “same business, same risks, same rules” principle, the SFC will work with the HKSAR Government to regularly review the regulatory regime in Hong Kong and consider timely measures in light of new market developments. These measures may include regulation of VA-related businesses other than the VATPs.
In collaboration with the HKSAR Government and other regulators and stakeholders, the SFC stays committed to ensuring the protection of investors’ interests and market confidence, as well as fostering a business environment that facilitates the sustainable and responsible development of Hong Kong’s Web3 ecosystem through properly regulated service providers.
- Where the licence application of a deemed licensed VATP is approved, withdrawn or refused, the name of the VATP will be removed and added to either the List of licensed VATPs or the List of closing-down VATPs. The SFC will remind investors that it has not vetted the fitness and properness of the platforms on the List of deemed licensed VATPs, which may not eventually be granted a licence and may be required to close down their business in Hong Kong.